Fix & Flip Financing: Leverage, Draws, and ARV Guardrails

Fix & Flip Financing: Leverage, Draws & Guardrails

Move fast. Don’t break the budget.

In the world of fix & flip, speed wins deals. But reckless leverage and fantasy ARVs? That’s how you end up on a YouTube video titled “How I Lost $200K Flipping a House in Four Weeks.”

We prefer a happy ending.

⚡ TL;DR (The Short Version for the Already Hustling)

Good fix & flip loans = fast closes + smart limits. You get funding for both purchase and rehab, but the lender keeps you (and your drywall budget) inside the lines. Watch your leverage (LTC/LTV/ARV), plan your draws, and always have an exit strategy that still works if the market gets grumpy.

🔢 The Only 3 Ratios That Matter

  1. LTC (Loan-to-Cost)
    Loan ÷ (Purchase + Rehab)
    Caps often 80–90%, depending on how many flips you’ve survived.

  2. LTV (As-Is Value)
    Loan ÷ Current Property Value
    Keeps day-one leverage from going full Evel Knievel.

  3. ARV LTV (After-Repair Value)
    Loan ÷ After-Repair Value
    Usually maxed at 70–75%—because appraisers don’t buy your TikTok renderings.

🏗️ Typical Program Shape (Give or take a few quirks)

  • Loan Term: 9–12 months (extensions if needed)

  • Payments: Monthly, interest-only. Sometimes deferred, with a fee at payoff

  • Rehab Funds: Held in escrow; released in draws tied to milestones

  • Experience Tiers: More flips = better pricing, higher leverage, fewer headaches

  • Fees/Pricing: Points upfront + rate based on your resume and risk stack

⚖️ Fast Comparison: Entry vs. Experienced Flipper

Feature Entry-Level Flipper Experienced Flipper
Max LTC 80–85% 85–90%
Max ARV LTV 65–70% 70–75%
Rehab Draws 3–6 post-inspection Faster turn, fewer draws
Reserves 3–6 mo. interest + buffer 2–3 mo. + smaller buffer

🧮 Real-Life Example (Yes, the numbers matter)

  • Purchase (as-is): $400,000

  • Rehab Budget: $120,000

  • Total Project Cost: $520,000

  • After-Repair Value (ARV): $700,000

Now let’s test the limits:

  • 70% ARV Cap: $490,000 max

  • 85% LTC Cap: 0.85 × $520,000 = $442,000
    → Lower number wins = $442,000 loan
    → Equity needed: $78,000 + closing costs/reserves

🧱 Draw Schedule: Keep It Simple. Tie It to Progress.

  • Draw 1: Demo + rough-in done

  • Draw 2: MEPs passed, roof/windows in

  • Draw 3: Drywall up, cabinets installed

  • Draw 4: Fixtures, floors, trim

  • Final Draw: Punch-list done, CO in hand (if required)

💡 Inspections can be remote—photos + third-party report. Always submit before/after photos + invoices for fastest release.

🐾 What Lenders Want to See (It’s not just your enthusiasm)

  • Purchase contract + detailed scope of work

  • Comps that actually support the ARV (same size, same zip, same decade)

  • GC license + insurance or your resume and a list of subcontractors

  • Timeline (basic Gantt works), permits plan, and projected carry costs

🚩 Red Flags (And How to Avoid Becoming One)

  • Fantasy ARVs: Use real comps, not dream listings

  • Stacked risks: Max leverage + thin reserves + tight timeline = denial. Fix at least one

  • Under-budgeted rehab: Add 10–15% buffer for labor and “surprise plumbing”

  • Slow draw releases: Pre-agree to inspection timeline + photo standards

🎯 Pick an Exit Plan Before You Swing a Hammer

🔨 Sell it:

Price aggressively, study DOM for your comp set, and don’t assume you’re the only flipper on Zillow.

🏠 Refi into DSCR loan:

Underwrite the stabilized rent, shoot for ≥ 1.10–1.20× DSCR. Bonus points if you already lined this up during demo.

Bottom line:
Fix & flip loans are powerful tools when used right. Move fast, plan well, and don’t confuse HGTV with underwriting reality.

Get a 12-minute pre-underwrite call · Download the 1-page dossier

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